By Howard Schneider
Washington Post Staff Writer
Saturday, November 15, 2008

The economy of the 15-nation eurozone has shrunk over the past three months and is now considered to be in recession, the first such prolonged contraction since the adoption of the euro as a common currency a decade ago.

The Eurostat statistics agency reported yesterday that growth in the economic zone shrank 0.2 percent from July through October, compared with the prior three months. Following a similar decline from April through June, the euro-zone economy has met one of the common definitions of recession -- two consecutive quarters of decline.

European leaders initially thought that the financial crisis would be confined largely to the United States, but they now face the most serious test to date of the economic integration symbolized by their use of the euro. The European Central Bank was slower to begin cutting interest rates than the Federal Reserve, the Bank of England and other major central banks, and has moved in smaller steps even after acknowledging that it needed to try to stimulate growth.

Analysts now regard further rate cuts in the eurozone as a given.

The Eurostat report adds to the accumulating evidence of a broad global recession.

Speaking in Frankfurt yesterday, Federal Reserve Chairman Ben S. Bernanke said the "financial markets remain under severe strain," and pledged to continue to work with his central bank partners across the world to address the credit crisis and its impact on financial institutions and the global economy.

He noted that, despite unprecedented actions taken by the central bank and others around the world to help banks and other financial institutions, "the continuing volatility of markets and recent indicators of economic performance confirm that challenges remain."

"For this reason," he said, "policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant. In times like these, we are especially aware of the importance of having close working relationships with our central bank colleagues around the world."